Replies to post #108846 on Biotech Values

[iwfal]

As previously noted, I think MNTA call writers are being penny-wise and pound-foolish and are deluding themselves by believing that they are not making highly consequential gambles about event timing.

I would suggest that everyone has:

a) different amounts of volatility that they can sleep with at night.

b) different liquidity and cash flow needs

c) different tax needs

...

Yes, some strategies are objectively foolish (because there is substantial risk of taking the entire portfolio down 90%) - but short of that I would suggest that it is just different strokes for different needs. E.g. writing calls is a way of lowering volatility in something that you see as promising - and for some people it is worth the vig to sleep better at night.

PS Never written a call in my life. Just don't think it is inherently foolish.

[poorgradstudent]

>More on the foolishness of call writing<

The key to call writing is to do it continually.

You're selectively pointing out a specific time in point for mnta where the sale may end up limiting profits. However, over the past 2 years, consistent selling of mnta calls was highly advantageous.

[HattieTheWitch]

More on the foolishness of call writing...

Dew, if you're going to essentially shut off discussion of options (a practice which I made clear I wholeheartedly disagree with), then you ought to control yourself and refrain from raising the subject - especially for what seems no other reason than questioning the intelligence of those who buy or sell options.

I've made good money selling covered calls on various stocks, with full knowledge that I'm going to miss out on The Big One. That's my approach, and it's no better or worse than yours - and by re-raising the subject the way you have, you do nothing more than lower the level of conversation.

At the moment, MNTA is an exception to my almost exclusive covered call approach - I want to get my monthly "rent" on the MNTA shares on which I've sold covered calls, but I also want to have a less than full-cost strategy for some funds - in wait for the big one - hence my raising the seemingly now curtailed subject previously.

[ilpapa]

I fully agree that it would be stupid of me to write calls against my core position, but that's not the point. The strategy is to set up a separate option portfolio in order to take advantage of IV's that are currently in the 90's(!). It's because I have a bullish view of MNTA's prospects that I'd consider the strategy - getting called would be a favorable outcome - 10% on investment for just over a month's work, plus the gain on the core holdings. Can't beat that with a stick.

[medchal]

Ah, "the foolishness of call writing", as examined according to imaginary "scenarios".  I thought that my agreeing to drop this subject would, among other things, end the constant carping about the stupidity of call writing.  Frankly, Dew, you are obsessive on this topic (as is shown when you reopen it to no good purpose) for reasons I can only guess at.  (I assume you see call writing on a favorite stock as a sort of "attack" on both the stock and your logic.)  If you are going to mischaracterize the taking very substantial, measured profits as "gambling" (for "excitement", I guess), then I reserve the right to point out your obvious error.  Your likely combination of unlikely events is a dodge.  I've been taking those profits for almost a full three years now and, contrary to what one might assume from reading your prohibitionist posts, I've made more money on the underlying stock than on the options--but the money on the options is certainly the icing on the cake which has made this investment extraordinarily profitable.  My profits so far, in fact, have been $12.57 per share earned over a three-year period on the number of shares most commonly owned--and I have never been in danger of a crippling loss, no matter what happened to the company.  I am not really interested in how some "scenario" could lead to a better result, and the arguments about those scenarios begin to sound like the discussion on a penny stock board, where the pumpers are trying to scare everyone with the terror of "lost opportunity".

Calculated much more precisely than that rough estimated profit per share, my actual return on MNTA and derivatives to date (annualized on a strict cash-flow basis) has been just slightly more than 175% per year.  My return during the same period of time, had I bought every single share I now own at a net of $5.36 (my personal low) on the date I first purchased MNTA (in November, 2007), would have been a little over 43% per year.  So much for my interest in buy and hold.

I'm frankly not interested in the tales of those who will claim to have done significantly better without using options, because I don't believe them (and if any such actually exist, they must have taken huge risks and/or had extraordinary timing, and are operating in a world far beyond my abilities); nor I am interested in whether anyone chooses to believe what I tell them.  My only purpose is, maybe, to educate a little, not to proselytize.  I think it would be a shame for someone to be spooked away from a profitable trading method simply because some people don't like to see calls sold on their pet stocks.  It is very easy, by the way, for anyone with just a rudimentary knowledge of internal rate of return, to sketch out a series of transactions on this stock, using historical values and mechanical rules as to strike prices, expiration dates, etc.--no judgment involved--and verify the startling returns that can be achieved--even when there are one or two of those "unlikely" positive events, or just periods of irrational exuberance, included in the time frame.  Such events, one needs to remember, do not cause losses; they only limit profits according to the taste of the call writer in choosing the strike prices he sells.